Research Summary

Economics

China Races Against Time as Demographic Drag Looms

The next decade will be critical for China as it seeks to further modernize its economy before demographic headwinds kick in.

Our long-term forecast suggests that a sharp economic growth deceleration predicted by some pundits is unlikely—it would require an unrealistic collapse in capex and/or a nosedive in productivity. But with cheap labor supply drying up and productivity gains moderating, failure to implement appropriate reforms may push China into a so-called middle-income trap.

The good news, however, is that China’s new leadership appears conscious of these issues, although concerns persist about various institutional constraints that hinder optimal resource allocation.